Robert Citron was a hard-to-hate villain in O.C.'s bankruptcy

Robert L. Citron, the former Orange County tax collector who presided over the county's investments when it went into bankruptcy in 1994, died Wednesday at St. Joseph Hospital in Orange. He was 87.

Citron suffered a heart attack early Wednesday and died Wednesday afternoon, said Eric Rosenberg, a longtime family friend and neighbor.

Citron was a wizard of high finance, who made millions of extra dollars for local governments with exotic investment schemes that soared over most everyone's head.

But in 1994, his investments went awry and Orange County lost $1.64 billion, ushering county government into what was then the largest municipal bankruptcy in American history. Citron was forced to resign from the job that had defined him, and he fell into a deep depression.

In the devastation that followed, there was a startling revelation: Citron's office had been diverting money from school districts to the county and keeping two sets of books. The one-time financial hero became a convicted felon at 71.

Citron was fined $100,000 and sentenced to one year in jail. He served his sentence at the jail commissary, processing orders for toothpaste and candy bars that came in from the inmates. He continued to collect his $92,900-a-year pension.

QUITE A CHARACTER

Robert L. Citron was an eccentric man. He had a strong affinity for Navajo jewelry; a zeal for USC football so intense his car horn played the Trojan fight song; and a license plate declaring LOV-USC, even though he didn't graduate from the school.

The former treasurer-tax collector consulted psychics and astrologers on the movements of the markets. He amassed a collection of 300 ties that he rarely wore, composed 14-page odes to the virtues of Chrysler automobiles, sported a calculator watch to precisely tally restaurant tabs, and got away with it all because people believed he was a genius.

Eyebrows barely raised when Citron dressed up as a firecracker one Fourth of July. As a county treasurer – a most sober and perhaps even boring pursuit – Citron inspired awe.

Citron's plunge from the pedestal left a deep scar on his psyche that never fully healed, friends said. Citron spent his last years of his life living quietly in Santa Ana's Fisher Park neighborhood with his wife, Terry. He was an active member of the Kiwanis Club, "always ready to lend a hand," said Alfredo Amezcua, a Santa Ana attorney who is the club's president.

"Bob Citron is, in many respects, a great, great American," said friend Tom Umberg, former state assemblyman. "Clearly, Bob made some very serious mistakes, as he would tell you. But there was lots of blame to go around. He pleaded guilty and took his medicine. Nobody else did."

To the end, Citron insisted that he did not cause the bankruptcy. If the supervisors hadn't forced him to resign, Wall Street wouldn't have panicked and sold off the county's collateral, he often said. The Board of Supervisors made the decision to declare bankruptcy – a move he considered ill-advised and unnecessary – not him.

In many ways, Citron's life resembled the tragedy of Icarus, the cocky boy who soared so close to the sun that his wings melted and he plunged into the sea. But he was an unsatisfying villain, an old man in a too-big suit, inspiring more sympathy than anger, even in the people who took the brunt of the bankruptcy.

"It wouldn't be fair to judge him by a single event," said William Steiner, a former county supervisor who was devastated when charges of willful misconduct in office were filed against him for failing to detect Citron's investment scheme (those charges were later dropped). "He spent many years working for the public good."

CALIFORNIA NATIVE

Robert L. Citron was born in Los Angeles on April 14, 1925, the sickly son of a doctor whose main claim to fame was weaning W.C. Fields off his beloved booze. Young Citron was a stutterer who suffered from asthma, and the family soon fled the smoggy city for rural Hemet. World War II service was out of the question for Citron because of scarring from a collapsed lung.

He attended the University of Southern California for three years but never graduated. He labored at a series of not-so-successful jobs as loan manager and car salesman, until he met wife Terry in 1955 after she admired his gleaming Chrysler (among the first of what would be more than two dozen Chryslers in Citron's lifetime). They married months later and were virtually inseparable.

Terry brought Citron luck. In 1960, he landed a job in the Orange County tax collector's office, and the couple moved to the one-story ranch home they lived in ever since.

Citron did well, rising to the level of supervisor. Emboldened, he ran for the top job in 1970, handily winning the title of Orange County Tax Collector.

In 1973, the county decided to save money by merging the offices of tax collector and treasurer. It seemed a natural fit: The tax collector took in hundreds of millions of dollars; the treasurer's office invested, accounted for and distributed the money.

Citron had no background in accounting or investing. He had never owned a single share of stock. But the offices were combined under his leadership nonetheless.

INVESTING 101

It was not just the county's money that Citron was suddenly charged with investing. He also controlled hundreds of millions of dollars from local schools, cities and special districts.

That first year, he stumbled – buying securities from the highest bidder rather than the lowest one, his former assistant treasurer, Ray Wells, testified. Citron's inexperience meant he came to depend on advice, especially from Wells, who had invested the county's cash for years.

But Citron also grew to depend on Merrill Lynch, a financial behemoth aiming to sell him securities, and thus far from impartial. Citron came to think of the firm as the county's financial adviser. So when Merrill salesmen began pitching Citron exotic investments – securities with higher risks, but also higher returns – Citron bought.

In 1979, Citron lobbied for a new state law allowing treasurers to borrow money against investments to buy even more investments – a move called "leveraging." The bill passed, and would come back to haunt him.

GOLDEN YEARS

Citron's effort to make money worked something like this: He bought bonds with the governments' pooled money. He used the bonds as collateral with Wall Street lenders in exchange for cash. With the cash, he bought more bonds.

In essence, he wagered on the difference between the short-term interest he paid on the cash loans, and the long- term interest he earned on the bonds.

For a while, it worked.

At one point, Citron's investments were earning 17.7 percent, and the county alone was raking in $344 million a year. Citron was furnishing 35 percent of the county budget, although government accounting standards say interest shouldn't comprise more than 5 percent. But no one asked questions. Instead, he was lauded for his acumen – and he lived for this praise.

FLYING HIGH

A new boldness possessed Citron in 1991. As recession drove interest rates down, he borrowed $2 for every $1 in the pool, plowed the money into even more complex securities and raked in even more cash.

Then Merrill Lynch introduced him to a flashy new idea: "step-up double inverse floaters." These tongue-twisting securities were tied to interest rates, paying progressively more as interest rates fell. Rates had been falling and Citron was convinced they'd keep falling for years. These securities would reward him handsomely for being right.

"He always said that there were two markets," former Assistant Treasurer Matthew Raabe once said. "There was the 'regular market' and there was the 'Citron market' and he believed he had tremendous influence over the market."

After Wells left and Raabe took over the No. 2 spot, the real trouble began.

According to Citron's version of events, the savvy Raabe took a look at the books and was unhappy. Citron was simply earning too much money. Raabe feared it would raise suspicions about the risk attached to the investments, and scare investors away.

The solution: divert some interest away from cities and school districts. That would make it look like the earnings were lower and reassure investors. That would also allow them to plow the extra money into the county's ailing general fund.

Citron said it was Raabe's idea. Raabe said it was Citron's idea. Neither thought it was illegal.

DESCENT

Then, in 1993-1994, interest rates did exactly what Citron did not want them to do. They rose. His ultra-risky, highly leveraged investments plummeted in value, yet Citron stuck to his strategy of borrowing against them and betting on the difference.

His investment pool was hemorrhaging.

In November 1994, the pool was imploding. Wall Street, which lent Citron the money he was losing, was getting antsy and wanted its money back. Still, Citron was sure the Street wouldn't demand cash that the county didn't have and precipitate a crisis.

The county commissioned a report on the pool's condition. Results came in Nov. 16, worse than many suspected. The pool had suffered a gargantuan $1.5 billion loss.

Flurries of frantic, secret meetings excluded Citron. County officials begged Washington, D.C., to help. They begged the Securities and Exchange Commission to help. They begged Wall Street to help.

On Dec. 4, a nervous contingent of top-level county officials knocked on the door of Citron's Santa Ana home. They presented him his letter of resignation, cited vague laws, and demanded he sign it.

All at once, the imposing, confident, cocky Citron was gone. He burst into tears, signed the letter and was consoled by two high-ranking women until a psychological social worker arrived.

CODA

Two days later, after Citron was gone, the county Board of Supervisors made the historic decision to file for bankruptcy in a bid to keep Wall Street at bay until a fix was found.

It didn't work. Wall Street began selling the county's collateral at fire-sale prices, costing the county an unprecedented $1.64 billion.

Citron watched helplessly. It didn't have to be that way, he told friends. Brokers considered him "the master of the ship at the helm," he later testified, and promised they would not sell the county short so long as he was around to keep the ship on course.

In the weeks that followed, the illegal accounting was uncovered. Some $90 million in interest had been skimmed from other governments and funneled into county accounts. Citron ultimately pleaded guilty to six felony counts of lying to investors and falsifying the county's books. He faced up to 14 years in prison and $10 million in fines.

In humiliating detail, Citron's attorney filed psychological reports with the court that said the "financial wizard" had a seventh-grader's math ability and performed so miserably on learning tests that he bordered on brain-damaged. Indeed, the reports said, Citron had been suffering dementia for years.

After his time in jail, Citron went on to do volunteer work and occasionally went to prayer breakfasts. He was passionate about the Elks Club. Friends said he suffered memory lapses that would leave him unable to recall names, finish sentences or complete a conversation.

Even some of Citron's harshest critics admit that his sins stemmed from flaws that afflict most people: an overly generous view of our abilities, a desire to please, a weakness for flattery.

In the years after the bankruptcy, Citron refused to grant interviews. But during Raabe's trial, he was asked if he was proud of his years at the county.